Robert C. Honodel and Claire E. Honodel v. Commissioner of the Internal Revenue

Taxpayers appeal from the ruling of the Tax Court which determined deficiencies in taxpayers’ income taxes due for the taxable years 1972, 1973, and 1975. The taxpayers assert that the court erred in finding that certain fees paid to an investment advisory firm were nondeductible capital expenditures, and that the court wrongly rejected their method of calculating the depreciable life of their real property investments. FACTS

During the years at issue, taxpayers were clients of Financial Management Service (“FMS”), an investment advisory service which provided financial management, investment, and tax analysis and advice to its clients. The stated goal of FMS was to minimize a client’s income taxes while enhancing his estate. It primarily focused on real estate investments.

New clients typically were invited to attend financial investment planning sessions which helped to acquaint the client with the services provided by FMS, and at which FMS analyzed the client’s existing financial position and recommended an investment and financial strategy for improving that position. Clients were then placed on an investment waiting list. If the client refused investments proposed by FMS,…